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Saturday 1 October 2016

EU referendum: Bank of England's Carney sounds another warning on Brexit recession risk

Published 24/05/2016 | 14:32

Governor of the Bank of England Mark Carney delivers his monthly inflation report at the Bank of England in the City of London
Governor of the Bank of England Mark Carney delivers his monthly inflation report at the Bank of England in the City of London

The Governor of the Bank of England, one of the most trusted public figures in the UK, has sounded another warning about the instant economic shock Brexit would inflict on Britain.

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Speaking in front of MPs on the Treasury Select Committee, Mark Carney, who recent polling suggested is more trusted among the public than senior politicians, said: “Brexit to my mind would have a material impact on growth and inflation. It would be likely to have a negative impact in the short term.”

Following up on his words earlier this month, Mr Carney added: “I certainly think that would increase the risk of recession.”

Mr Carney’s warning follows a stark warning from the Chancellor yesterday, citing Treasury economic analysis, that Brexit would lead to an immediate year-long recession for the UK.

The Governor’s interventions could be decisive since a poll earlier this month found 16 per cent of adults who are “undecided” about how to vote in the 23 June referendum trust Mr Carney to give them an honest view.

Boris Johnson was second on 13 per cent, followed by Prime Minister David Cameron on 11 per cent and Labour leader Jeremy Corbyn on eight per cent. George Osborne scored just one per cent.

A separate poll also showed that the Canadian Mr Carney is the foreigner whose views on Brexit are deemed the most significant by the public. 60 per cent of the public said Mr Carney’s views were “important”, compared with 34 per cent for Angela Merkel and 30 per cent for Barack Obama.

The International Monetary Fund has also warned recently of the risk of recession for Britain it the public vote to leave the EU on 23 June. The Fund will release a full report showing the likely economic impact of Brexit in the week before the vote, when the entire UK public sector, including the Bank and Government civil servants, will be put into mandatory “purdah”, meaning they are barred from making public statements on the question of Brexit. The purdah period will begin on Friday.

Mr Carney was asked by the TSC’s chair, Andrew Tyrie, whether he believed it was appropriate for the IMF to make a potentially significant intervention at this late stage and when purdah is in force.  “I think it’s a detail, candidly” said Mr Carney, arguing that he thought the IMF had already made clear its view that leaving the EU would have a negative short-term and long-term effect on the UK economy.

One member of the TSC, the pro-Brexit Conservative MP Jacob Rees-Mogg, accused Mr Carney of producing “Treasury propaganda” and of “politicising” the Bank of England through his statements on the economic impact of Brexit. This was strongly denied by Mr Carney.

 “There is no possibility of undue influence coming from the Treasury. There is no possibility of effective influence, even if it had been tried” he said.

Mr Carney added that the Bank would have been failing in its responsibilities to safeguard monetary and financial stability if it had not flagged its views on the impact of Brexit. “The British people expect us to come straight with them. They don’t want risks to be kept from them” he said.

Mr Rees-Mogg, who has previously called for Mr Carney to resign for his comments on Brexit, said he had received information that the Governor had offered to speak to MPs who had been wavering over the EU issue. Mr Carney denied this.

Reuters

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